Let’s say Jane makes Pies. She works from home and gets her
flour from a regional mill that buys grain from Jane’s neighbor, Farmer Bob –
Bob also raises the chickens that lay Jane’s eggs. Jane grows rhubarb in her garden, buys apples
from the local orchard, honey from the county bee-charmer and strawberries from
the winery. She packages her pies in
recycled material and ships them to Plagman’s Grocery. When you walk into the
grocery store and buy that delicious strawberry-rhubarb pie nearly 100% of its
wealth stays at home. And that, folks,
is the third degree of multiplication.
Last week we talked about how $63 of every $100 spent
locally is reinvested locally.
This week we are talking about the “Multiplier
Effect.” The Multiplier Effect can be roughly summed up thus: Not only does
spending locally keep cash locally but it starts a domino of local spending
that gives that original $63 the economic impact of $128 by the time it reaches
the third local consumer/producer.
According to American Independent Business Alliance the
total economic impact is determined by measuring three components: The direct,
indirect, and induced impacts.
“Direct impact is spending done by a business in the local
economy to operate the business, including inventory, utilities, equipment and
pay to employees.
Indirect impact refers to the conventional multiplier that
happens as dollars the local business spends at other area businesses
re-circulate.
Induced impact refers to the additional consumer spending
that happens as employees, business owners and others spend their income in the
local economy.”
So, the First degree is retained cash; the second degree is
the multiplier effect of direct, indirect and induced spending. What is the
third degree?
The third degree is depth: If you can create a product
locally with locally procured resources and sell it locally your community will
retain nearly 100% of the wealth generated by the product.
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